Commercial-lines rates are under pressure, but so far that hasnot correlated to standard carriers competing for businesstraditionally written by the excess and surplus lines market, aNationwide executive says.

Speaking to PC360 about the company's Q2 results, CFO MarkThresher touched on the state of the market, saying, “I think we'reseeing clearly some pressure on [commercial-lines business].” Hesays rate increases for new business are evaporating away to somedegree.

“The good news,” he adds, “is I think we're seeing exposuregrowth and an opportunity to grow anyway. But I think the run ofcommercial pricing over the last couple of years is coming slowlyto a halt.”

As Thresher talked about the growth opportunities inNationwide's specialty businesses, such as Nationwide Agribusinessand Scottsdale Insurance Company, he said standard carriers havenot tried to take Scottsdale's E&S business despite thecompetition in the commercial-lines market. “Scottsdale is stillgrowing double digits,” Thresher says. “So I don't think thestandard players are back into that market yet, but we'll just haveto watch that.”

Weather impacts P&C results

Nationwide saw its Q2 net income fall to $57 million, comparedto $657 million in 2013's second quarter. While Financial Servicessaw a net operating income gain—to $313 million from $185million—the property and casualty business suffered a Q2 netoperating loss of $134 million, compared to a gain of $113 millionin Q2 2013.

Thresher faults higher weather-related losses. In particular, hecites storm losses in states where Nationwide has higher marketshare. “We had some pretty big hail storms in Pennsylvania; we hadstorms in Iowa,” he says. “A number of locations where we happen tohave fairly high market shares in.”

Weather losses hurt the company in Q1 as well, when net income fell to $140million compared to $484 million in Q1 2013. Thresher noted at thetime that January “was probably as high of weather losses as we'vehad historically.”

In Q1, Thresher said he was comfortable with Nationwide'sgeographic spread, noting that the losses were the result of aprolonged freeze that affected many states stretching as far southas Georgia and beyond.

This quarter, Thresher likewise does not point to any state orregion where he believes the company should reduce its exposure,but he does talk about growing more in areas west of theMississippi River. “All we try to do continually is to monitor ourconcentrations across the country,” he says. “We want to grow, butwe want to grow in a diversified way.”

Speaking to the opportunities further west, Thresher says beforethe company acquired Allied Insurance, its business was mostly eastof the Mississippi. “Allied is more west, but we have plenty ofroom and wide open states where we can continue to do that,” hesays.

He also says the company will look to balance personal-linesgrowth with growth in commercial businesses, “which actually tendto be a little less impacted by weather than individual personallines.”

Nationwide's results were also impacted by $179 million in netrealized investment losses compared to a gain of $547 million in Q22013, but Thresher points out the loss is a mark-to-market issue,rather than selling securities at a loss. “It's two things,” hesays. “We have a derivatives program in place to shorten theduration of our P&C investment portfolio, and that's sensitiveto interest rates. If interest rates go up, we'll have a gain inthat program.

“And then the hedging program behind the variable annuityguarantees is fairly complex and, due to some unusual terms instatutory accounting we have an interest rate hedge in place alsothere, so when rates go down” the results go down, but wheninterest rates go up, it can go in the other direction.

Financial services

Regarding the year-over-year successes in the financial-servicessegment, Thresher says the equity markets have helped out some, butalso points out that sales growth “was very nice again, I think up8% year-over-year.” He says the company and distributionpartners—mostly financial advisors—have done “a great job” focusingon the right products to sell.

The plan, he adds, is to keep a good balance between life,annuities and retirement plans.

Overall, Thresher says, “We are really pleased with thecontinued growth of the business, both on the property and casualtyside as well as the financial services side.”

Despite the impact of weather losses, premiums and policycharges were up in the quarter, to $5.2 billion compared to $4.8billion in Q2 2013.

“Obviously we had some weather challenges for our members in thefirst half that had an impact on earnings in the property andcasualty business,” Thresher says, “But overall, I think [it's] astory of a diversified set of businesses, and I think that camethrough in the first half of the year for sure when you see thenice results in financial services when you have a tough P&Cweather year.”